marcus evans expose the importance of effective risk management and controls in protecting against serious and unanticipated loss is best illustrated by recent cases where this function broke down.
When it comes to establishing acceptable risk measurements for the banking sector there is no one way because there is no one risk. However, there are some strong guidelines to consider, according to Victor Birman, Head of Reward at Gulf Bank of Kuwait.
Birman is a speaker at the marcus evans 3rd Annual Compensation and Benefits in the Financial Sector.
+An organisation needs to know what risks it can be exposed to and to what extent. In different set ups there will be different risks and by virtue of being a bank this doesn't mean that every bank is exposed to the same risks as they play in different markets.
+How aggressive the shareholders are is also a big consideration. This will define what is acceptable as risk to that organisation and is going to be a lot higher than to a more conservative set of shareholders and board. The higher the risks the higher the potential returns but also there is a downside. Can the organisation and its customers bear the downside?
+Education of the decision makers and the senior management team is also an important factor. As ultimately they establish corporate governance frameworks and sign off on any major deals and product designs. If youï¿½re talking about old school perspectives on a new world of financial services then uninformed decisions that will lead to pitfalls will be made.
Birman adds that corporate governance frameworks are absolutely critical and arguably represented probably the biggest failure in the 2008/09 crisis:
Exposed in public:
As the sector was heating up in the early 2000s corporate governance failed. Greed and readiness to turn a blind eye led to the organisation ultimately paying the price. If the corporate governance framework is not in place and if it's not really policed and implemented then it doesn't really matter if all the other boxes are ticked. The early warning systems won't be there to detect prevent collapse.
Birman adds that in house expertise is critical in terms of establishing acceptable risk measurements. If you don't have in house expertise from a risk point of view that does not report to finance or any other support function an organisation might falsely consider itself to be in a reasonable shape.
You have to have the right foundations in place and if you don't have the foundations you are never going to be in a position to know what acceptable risks are and therefore to set the measurements for them.
The marcus evans 3rd Annual Compensation and Benefits in the Financial Sector will take place on 11-12 July in Singapore.
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